Can the rights arising from a registered IDERA be restricted by a warrant of prohibitory injunction?
By: Ganado Advocates
In its judgment delivered on the 8 November 2021, in the names of Air X Charter Limited and Air X Aircraft Finance I Limited vs. (1) Firm Mamo TCV Advocates as Deputy Curators acting on behalf of Avmax Aircraft Leasing Inc (Canada) (“Avmax”) as beneficial owner of eight (8) aircraft (the “Aircraft”) and Bank of Utah (United States of America) acting as owner trustee of the Aircraft and (2) The Malta Transport Authority, the First Hall Civil Court, presided over by Hon. Justice Robert G. Mangion, examined whether a warrant of prohibitory injunction can be issued to inhibit the holder of a registered Irrevocable Deregistration Export Request Authorisation (“IDERA”) from enforcing its rights arising from an IDERA in Malta.
Facts of the Case
Avmax leased the Aircraft to Air X Finance Limited, who further subleased the Aircraft to Air X Charter Limited. The Applicant Companies were required to respect their obligations to make punctual payments to Avmax under lease agreements entered between the parties. Due to the effects of the COVID-19 pandemic on the aviation sector, the Applicant Companies defaulted on their payments to Avmax, and owing to this, the parties further entered into a Memorandum of Understanding to restructure payment mechanisms. Despite this, the Applicant Companies once more failed to fulfil their payment obligations, leaving Avmax with no other option other than to call an event of default, as the non-payment of the agreed fees was tantamount to an event of default under the terms of the lease agreements.
The lease agreements contained a clause which authorised any holder of an IDERA granted by the lessees, to enforce the IDERA in the event of default of the lease agreement. By way of background, an IDERA is an authorisation granted by a debtor to an authorised party/certified designee (in this case the Court identified the Bank of Utah as the certified designee), entitling same to procure the de-registration and the export of an aircraft to be redelivered to another country selected by such authorised party/certified designee. As certified designee under the IDERAs, the Bank of Utah filed several applications with the Maltese Transport Authority for the de-registration of the Aircraft under the IDERAs.
Upon submission of the IDERAs by the Bank of Utah, the Applicant Companies filed a warrant of prohibitory injunction against the Respondent Companies requesting that the Court withholds (i) Avmax and Bank of Utah from enforcing their rights under the IDERA and proceeding to file an application with the Malta Transport Authority to deregister and export the Aircraft; and (ii) the Malta Transport Authority from processing and taking any action with regard to the request made by the Bank of Utah under the IDERAs registered in the Maltese Aircraft Register.
The Considerations of the Court
The Court outlined the elements required for the issue of a warrant of prohibitory injunction to be successful in terms of Maltese Law. Under Article 873 of the Code of Organisation and Civil Procedure (Chapter 12), for a Warrant of Prohibitory Injunction to be fulfilled, the Applicant Companies’ must:
- Show that the injunction is required to safeguard the rights which the applicant claims to have; and
- Show that they prima facie possess such right.
When determining whether to issue a warrant of prohibitory injunction, the Court stated that it is required to analyse whether “the right that the applicant seems to have might be lost once and for all at the time that the request for warrant is being issued”.
The Court noted that Malta ratified the Cape Town Convention in 2010, and Maltese Law obliges all courts and tribunals to take judicial notice of the provisions of the Cape Town Convention as the Protocol as implemented by the Implementing Law. The Cape Town Convention requires the Maltese Aviation Registry to record and recognise any IDERA which is duly issued by a debtor. The Court quoted Article 15, First Schedule of the Aircraft Registration Act, which provides that where a debtor has agreed, the creditor may procure the de-registration and the export of the aircraft from the territory which it is situated without leave of the court. The Court understands that the powers granted under an IDERA are irrevocable and the powers granted by the applicant companies to the Bank of Utah were not contested at any stage by any of the involved parties.
The Applicant Companies insisted that they were compliant with their payment obligations under the memorandum of understanding and for this reason opined that the request for deregistration made by the Certified Designee under the IDERA was done “with no valid reason at law”. The Court stated that the Applicant Companies were required to show sufficient evidence to support their claims for the court to withhold the respondent societies from exercising their rights under the IDERAs and lease agreements. The Court considered that the Applicant Companies failed to provide prima facie evidence that they were compliant with their payment obligations under the memorandum of understanding and therefore quashed their claims.
Furthermore, the Court added that the IDERAs were registered in the Maltese Register with the consent of the same Applicant Companies. Also, the irrevocable power assigned to the Respondent Companies by virtue of the IDERAs were never contested and the Applicant Companies failed to provide prima facie evidence that the Court had any right to neutralize the irrevocable authority that was assigned to the certified designee. The Court emphasised that the law is clear and does not allow for any exceptions in the manner in which an IDERA is implemented or enforced, meaning the power granted to any authorised person or certified designee under an IDERA is binding, and if said person had to abuse of any powers assigned to them under an IDERA, they may be sued for damages, but this should not be a reason to impede any instruction for deregistration under an IDERA.
The Court understood that the deregistration of the Aircraft would greatly detriment the Applicant Companies, but this was not relevant when determining whether the Malta Transport Authority should reject a regular request to de-register the Aircraft from its register. The Court further stressed that issuing such warrant of prohibitory injunction in the Applicant Companies’ favour would inhibit the proper adoption of the Cape Town Convention and any principles under the Aircraft Registration Act.
In view of the above, the Court concluded that the elements required at law for a warrant of prohibitory injunction to subsist were not satisfied. Consequently, the Court rejected the Applicant Companies’ claims to withhold the respondent companies from enforcing their rights under the IDERAs and obstruct the Malta Transport Authority from processing any request made by the certified designee under the IDERAs.